The China of the West: BMW pledges $1Billion to build plant in Mexico

All eyes are looking at Mexico for investment opportunities; case in point is the July 3rd announcement that BMW will construct a $1 billion USD…
The China of the West: BMW pledges $1Billion to build plant in Mexico

Mexico’s President Enrique Pena Nieto delivers his speech during the announcement of the first BMW car factory in Mexico, at Los Pinos Presidential Residence in Mexico City, Thursday, July 3, 2014. Germany’s BMW announced Thursday it will invest $1 billion to build a new luxury car factory in northern Mexican state of San Luis Potosi, that will start production in 2019. (AP Photo/Moises Castillo)

All eyes are looking at Mexico for investment opportunities; case in point is the July 3rd announcement that BMW will construct a $1 billion USD plant in San Luis Potosi.

SEE ALSO: Commerce between Mexico and China could impact the US

This is an important deal that will bring jobs to the Latin American nation in the near future. Nevertheless, in spite of Mexico’s success at attracting foreign investment, the Mexican automobile workforce is not being properly compensated for their role in helping their nation grow.

The Deal

It makes sense that BMW chose Mexico for a new plant. As Reuters explains, the Latin American state has a large industrial base and enjoys “tariff-free access to the U.S. market.”

If everything goes on schedule, the plant will become operational by 2019, employing 1,500 workers in its initial phases and producing up to 150,000 vehicles annually. The company has not revealed which car will be built there, but speculation centers around BMW’s 3 Series.

Unsurprisingly, Mexican government officials highly praised the deal. For example, Economy Minister Ildefonso Guajardo declared, “with this investment, Mexico is stepping up to premium-level production of global vehicles.”

BMW now joins other vehicle manufacturing companies that plan to construct plants in Mexico, including Kia Motors Corp and Daimler, in partnership with Nissan.

BMW to invest $1 billion in new plant in Mexico

BMW to invest $1 Billion in Mexican assembly plant.(Shutterstock)

Money and Treatment

But while the Mexican government, BMW and San Luis Potosi pat themselves on the back, there are losers in the deal. One example is the United Auto Workers, one of the largest labor unions in the U.S., which would have preferred if BMW had opened its new plant in the U.S. (The company already has a plant in Spartanburg, South Carolina).

Likewise, after the BMW and Daimler/Nissan accords were announced, the renowned Canadian daily Globe and Mail stated that these deals “underline how Canada is being eclipsed by Mexico when it comes to new auto investment.” An article in the daily highlighted how Mexico City enjoys free-trade agreements with more than 40 countries and also has “ports on both the Atlantic and Pacific oceans that operate year-round.” (Meanwhile, Canada has FTAs with just over 10 nations, although it is in negotiations with more than 60 others)

Additionally the Globe and Mail also praised the Latin American country’s foreign investment agency, ProMexico, which is constantly lobbying major companies to invest there. Just this past June, the agency presented a financial report entitled The Report: Mexico 2014, which analyzes the country’s industrial sectors and discusses structural reforms enforced to make Mexico increase its competitiveness.

Mexican Interests

While the BMW deal is a victory for Mexico City and San Luis Potosi, it is also a loss for other Mexican states that wanted the plant, like Hidalgo.

A July 4 article in the Mexican daily Milenio argues that Hidalgo was a better option for the BMW plant because the state is already constructing the “Plataforma Logistica de Hidalgo,” an industrial district for manufacturing companies. It also highlighted how convenient it is to travel from Hidalgo to Nuevo Laredo, a town that borders the U.S. and is a gateway for commerce between the two nations.

Aside from the debate around which state is better suited for the plant, it makes sense for BMW to move its operations to Mexico. As previously mentioned, the Latin American country has an ideal location as it neighbors the U.S., a prime target for BMW’s vehicles.

Additionally, Mexico has an experienced automobile workforce, as the country is already the eighth largest producer of vehicles in the world. “The auto sector represents 20% of Mexico’s manufacturing industry and contributes about 4% of gross domestic product,” adds Marketwatch.com.

Ultimately the deciding factor for BMW’s decision was Mexican wages. A January 2014 article in Manufactura.mx explains the requirements for workers to apply for a job at an Audi plant in the state of Puebla. It also explains that salaries for automobile workers in 2014 are between 200 Mexican pesos ($15 USD) and 560 pesos ($43 USD) a day. This makes Mexican workers woefully underpaid.

In fact, of the 20 major automobile producers in the world, Mexico is in the bottom three when it comes to salaries. Hence, Mexico has gained the dubious title of “China of the West,” due to its skilled labor force and alarming low salaries.

By the end of the decade BMW will have a new plant in San Luis Potosi and Mexico’s automobile manufacturing industry will continue to grow. While this reads like a headline of only winners, there are also losers such as Canada, the U.S. automobile industry as well as Mexican states like Hidalgo.

Ultimately, the main question is how beneficial the plant will be. Certainly, cars will be exported, BMW’s coffers will swell, and Mexican President Enrique Peña Nieto can take credit for this deal. But when it comes to Mexico’s automobile workers, they still await a more just salary while their country participates in a global race to the bottom.

SEE ALSO: Chefs are Mexico’s new corps of diplomats